Refinancing myths

Four Refinancing Myths Busted

Rates and Fees verified correct on December 8th, 2016

At last, we bust the biggest refinancing myths out there.

Have you given your mortgage a health check recently? Whether you are looking to lower your monthly repayments, restructure your loan or access more flexible options, refinancing may be a viable option.

There are many myths surrounding refinancing, with the general perception being that it’s complicated, expensive and best left in the too-hard basket. The truth is that refinancing is quite straightforward and more affordable than you think.

Refinancing Myth 1: There are too many hidden fees associated with refinancing.

Sample ImageOn 1 July 2011, the Government abolished exit fees. Lenders are now banned from charging borrowers exit fees (like deferred establishment fees) on new loans, although fixed loans and loans prepared before 1 July 2011 still incur early repayment costs.

Matt Cunliffe

  • Matt won Broker of the Year in 2014 at the Better Business Awards in QLD, as well as Best Residential Broker
  • He is a Mortgage Choice broker based in South West Brisbane.

Queensland Broker of the Year, Matt Cunliffe from Mortgage Choice, Brisbane, warns that there are still fees to take into consideration. Smaller charges like document preparation fees, settlement attendance fees and title fees from both your outgoing bank and new bank are likely to be charged to borrowers. Some banks have set fees for these on top of other charges, others will include them in their settlement or establishment fees and some charge these fees on a case-by-case basis.

Extra charges come into play when borrowers are looking to increase their loan, change to a fixed rate amount, or need to borrow more than 80% of the property value. In these instances stamp duty may need to be paid and or Lenders Mortgage Insurance (LMI) taken out on the extra loan amount.

Banks and lenders vary significantly in their fees and charges but there are some unavoidable refinancing charges that are actually applied by the government rather than the lender. Each state has a set loan registration fee of between $100 and $160. Borrowers are required to pay this twice – once to deregister the loan with the previous lender, and then again to register it with the new lender.

The standard costs associated with establishing and/or exiting standard variable rate home loans with the big four banks are outlined below.

BankStandard Variable Rate Mortgage ProductInterest RateDischarge CostsEstablishment Costs
CBAStandard Variable, No Fee and Base Home Loans5.20% p.a. (5.20% comparison rate)$0$0
NABNAB Tailored Home Loan5.08% (5.45% comparison rate)$350 discharge settlement fee

$0* (*$600 loan approval fee is currently waived on all new loans)

$8 monthly service fee

ANZ

Simplicity Plus Basic Variable Rate

5.18% (5.23% comparison rate)

$160 settlement fee + fees to access government records and lodge paperwork.

$600 loan approval cost is currently waived upon request.

No ongoing monthly fee.

WestpacRocket Repay Variable Rate

5.48% (5.62% comparison rate) *from 4.78% with Premier Advantage Package

Discharge settlement fee $350

$600 Loan establishment fee

$8 monthly service fee

Premier Advantage Package: $350 p.a., no establishment or monthly service fee.

Note: These figures are current at the time of writing.

Lenders are required to provide all standard costs associated with their loan products so there shouldn’t be any surprises when it comes to fees and charges. Individual refinancing situations vary considerably; however, be sure to ask specifically about fees and charges that may affect you.

About comparisons of refinancing home loans today

Refinancing Myth 2: Refinancing is expensive and negates the benefits of a lower interest rate.

Sample ImageUsing the data in the table above and the Mortgage Switching Calculator from Money Smart, we tested this myth with a case study:

Jim and Maria have owned their home in Queensland for three years and have a mortgage of $430,000. They have a Rocket Repay variable rate loan with Westpac. It has an interest rate of 5.98% and they repay it weekly. While Jim and Maria are happy with the options available to them, they feel the interest rate and ongoing costs are too high and have decided to switch to the no fee option with a 5.20% interest rate that Commonwealth Bank offers.

If they stayed with Westpac, Jim and Maria would pay a minimum of $678 per week and $401,286 in interest and fees over the course of the next 22 years.

If Jim and Maria move to the Commonwealth Bank, they will have to pay $350 in discharge settlement fees and $314.80 in third party registration fees ($157.40 x 2). It will take them three months to recover the $665 in switching costs and their minimum weekly repayments will be down to $632. They will save $84,415 in interest and two years and five months off the life of their loan.

The benefits can quickly outweigh the expenses in many refinancing situations, particularly when you are doing a straight transfer and your LVR is less than 80%. If you are looking to consolidate debt or incorporate more flexible options, refinancing may be necessary and it can definitely still be to your advantage. Working with a financial planner or mortgage broker and have a specific budgeting strategy in place will help you make your loan work for you.

About use our loan comparison calculator to compare loans

Refinancing Myth 3: All of the incentives that are currently being advertised are just marketing gimmicks.

Sample ImageAccording to Cunliffe, the incentives that banks are offering to pay the switching costs or pay rebates are definitely of some help. “Incentives are being offered to combat the retention processes that banks have in place to match offers when they get word of a client looking to discharge. By providing a contribution, it makes the costs somewhat irrelevant and a marginally cheaper rate or more preferred loan structure and features can see a refinance proceed with little concern for the imminent fees.”

Instead of being wary of incentives, use the fierce competition in the market to your benefit. If the bank you are considering is not offering a particular incentive or package, be sure to ask before you shut down that option because they are often available upon request or are willing to match it.

About comparisons of home loans offering cashbacks and rebates

Refinancing Myth 4: Refinancing is not worth the effort

Sample ImageIf you remember the process of buying your house as being stressful, keep in mind that refinancing is much more straightforward and less emotionally driven. Since that time, your personal situation has likely changed and the mortgage products available have become more competitive so it’s worth looking again. Ideally you should review your mortgage annually but now is the next best time. Approximately 33% of all mortgages sold in the past year were refinances according to AFG.

If you have a good relationship with your bank you can speak with them or keep an ear out for good deals and market trends. Cunliffe advises speaking with a broker to streamline the process and find out if it’s worth refinancing. “Not only will they be able to help with reviewing your current loan setup against the different offers in the market, you will be able to calculate the costs vs the benefits of refinancing.”

Some other considerations

Title If you are considering refinancing your mortgage, beware that the interest rate is not everything. Other variables will also come into play:

  • The relationship you have with your current lender. If you have a good relationship with your bank they may be willing to work with you to adjust the terms of your loan or match a competitor’s interest rate or terms.
  • Other debt and accounts that you might want to consolidate and bundle. What packages does the bank offer?
  • How long have you been paying off your current loan? If you are more than half way through your loan, it may not be advisable to enter into another long term loan.
  • The flexible features available. Features on the new loan including an offset account, flexible repayments and redraw facilities may also help you pay your loan off quicker.
  • The comparison rate. As a general rule, the closer the comparison rate is to the advertised interest rate, the fewer fees and charges are added on to the loan. There are many exceptions to this rule but it’s worth being aware of.

Refinancing a home loan isn't complicated and can save you thousands and years off your mortgage, so it's worth starting a comparison today. You can compare the home loans below to get you started, or if don't have as much time or would prefer an expert to help you, click the 'speak to a mortgage broker' tab to contact an experienced mortgage broker.

Compare refinancing home loans

Rates last updated December 8th, 2016.

CUA Kick Start Variable Home Loan - 2 Years Introductory (Owner Occupier)

Comparative rate decreases by 0.03%

November 29th, 2016

UBank UHomeLoan Variable Rate - Standard Variable Rate (Investor with Investor Extra Offer P&I)

Comparative rate decreases by 0.10% | Interest rate decreases by 0.10%

December 2nd, 2016

UBank UHomeLoan Variable Rate - Standard Variable Rate Value Offer (Owner Occupier P&I)

Comparative rate increases by 0.10% | Interest rate increases by 0.10%

December 2nd, 2016

View latest updates

Jodie Humphries Jodie
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
3.74% 3.74% $0 $0 p.a. 80% Go to site More info
HSBC Home Value Loan - Resident Owner Occupier only
Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.
3.55% 3.57% $0 $0 p.a. 90% Go to site More info
loans.com.au Essentials - Variable Refinancers Only (Owner Occupier, P&I)
A low-interest rate loan suited for refinancing with no application or ongoing fees.
3.59% 3.61% $0 $0 p.a. 80% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed ($150K+ Owner Occupier)
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.59% 4.42% $0 $375 p.a. 85% Go to site More info
ANZ Breakfree Package Home Loan - 2 Year Fixed (Owner Occupier) $150k+
This 2 year fixed ANZ Breakfree Package rate comes with package discount and product bundle. Terms and conditions, package fee and fees, charges & eligibility criteria apply.
3.75% 4.62% $0 $395 p.a. 95% Go to site More info
ClickLoans The Online Home Loan - Owner Occupier ≤ 80% LVR
Enjoy a competitive interest rate when you have a deposit of at least 20%.
3.69% 3.69% $0 $0 p.a. 80% Go to site More info
NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier)
A fixed rate package loan with flexible repayments options. 250,000 Velocity Frequent Flyer point offer, conditions apply.
3.75% 4.87% $0 $395 p.a. 95% Go to site More info
Bank Australia Basic Home Loan - Variable (Owner Occupier)
A competitive variable that allows borrowers to borrow from a minimum of $100,000 and $0 ongoing fee.
3.59% 3.60% $0 $0 p.a. 80% Go to site More info
CUA Kick Start Variable Home Loan - 2 Years Introductory (Owner Occupier)
Borrow up to 90% LVR and enjoy an introductory rate for the first 2 years.
3.69% 3.87% $600 $0 p.a. 90% Go to site More info

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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HSBC Home Value Loan - Resident Owner Occupier only

Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.

ME Bank Basic Home Loan - LVR <=80% Owner Occupier

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NAB Choice Package Home Loan - 3 Year Fixed (Owner Occupier)

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